iBio (IBIO) Stock Is Falling on Public Offering News. Is There Still Hope?

iBio Inc (NYSEAMERICAN: IBIO) is falling pretty hard this morning after announcing the pricing of a public offering. Unfortunately, the offering upset investors by essentially announcing that dilution would be the result.

This type of move isn’t all that uncommon.

From time to time, public companies issue new shares in order to raise funds. In some cases, the dilution leads to short-term declines, in others, it’s more of a sign of coming long-term hardship.

So, where does IBIO stock stand following the offering announcement?

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The IBIO Public Offering

Through the public offering of common stock, iBio plans on raising gross proceeds in the amount of $35 million. This will take place through the sale of 29.7 million shares of common stock.

Of course, iBio isn’t going to get 100% of gross proceeds as there are underwriting discounts, commissions, and other expenses associated with any offering. Nonetheless, the company will retain the lion’s share of the money.

Moreover, the company said that it has granted the underwriter the option to purchase about 4.4 million additional shares of common stock for up to 30 days following the closing of the transaction.

Use of Funds

In the press release, iBio said that it will be using the net proceeds from the offering to accelerate the development of its biotherapeutic and vaccine candidates as well as in-licensing of biopharmaceutical assets, working capital, acquisitions and investments, and general corporate purposes.

Why Public Offerings Generally Lead to Declines

IBIO stock isn’t alone in experiencing relatively dramatic declines after announcing a coming public offering. In fact, it’s commonplace in the stock market.

The fact of the matter is that while offerings of common stock bring millions of dollars through the doors, allowing for research that will lead to growth, they are also a painful reality.

The fact of the matter is that there are only so many shares of IBIO available. When new shares are added to the pool, it’s like cutting additional slices in a birthday cake. Everyone’s slice is going to be a bit smaller.

So, when a company issues new shares, the piece of the company owned by shareholders that got in before the offering shrinks a little, leading to concern.

While the long-term results of the offering are yet to be seen in the IBIO stock chart, in many cases, declines caused by offerings are short term issues and companies will recover relatively quickly.

iBio as a COVID-19 Play

In the press release, iBio mentioned that the funds will be used to accelerate its therapeutic and vaccine candidates. Here’s what you need to know about those:

Vaccines

On the vaccine side of the coin, iBio announced early on that it was working in a partnership with CC Pharming, a Chinese biotech company, on developing a COVID-19 vaccine. Due to CC Pharming’s history in the development of a vaccine for SARS, a sister strain of the virus that causes COVID-19, the vaccine seemed to be a promising endeavor.

In recent months, we have heard very little from IBIO in terms of this vaccine, but it’s not the only one the company is working on.

There is a second vaccine in the works at IBIO. Yet again, we haven’t heard much about this vaccine candidate recently. Nonetheless, we may have some nice surprises down the road should the company be making any progress here.

Therapeutic Options

More recently, iBio seems to be moving into the therapeutic space. In fact, according to BioSpace, the company is working on a decoy molecule that acts like an antibody and fools the virus into believing it’s a human cell.

If this technology is proven effective, the company could be sitting on the goose that lays the golden eggs in terms of COVID-19 therapeutics.

iBio Beyond COVID-19

On the other hand, many say that IBIO is too far behind the curve to see any real profits from COVID-19. With Pfizer and BioNTech’s vaccine already being administered in Europe and coming to the United States, coupled with the fact that other vaccines are on the cusp of availability, the company may have missed its opportunity.

I don’t believe this to be the case, but it is a compelling argument that’s worth mentioning.

Nonetheless, even beyond COVID-19, there’s plenty of value locked away in shares of IBIO stock. In fact, the real value of the stock was displayed in a recent announcement when the company said it was chosen by ATB Therapeutics to produce antibody-toxin fusion proteins for the treatment of cancer.

The proteins will be produced at the company’s FastPharming Facility, further validating the value the Facility brings to the table. With success here, iBio, and its FastPharming Facility, could become the go-to source for the engineering of this type of and other types of proteins that are used to treat a wide range of ailments.

This is an important part of our understanding of treading ailments of the human body. After all, your DNA knows what to do, but it sends proteins throughout your body to execute tasks. If we can harness the power of various types of proteins in healing, who knows what we can accomplish in the future of medicine.

Risks to Consider Before Investing in IBIO Stock

While there are plenty of reasons to consider investing in IBIO stock, there are also plenty of reasons to be concerned. After all, no investment comes without its share of risks. Some of the biggest risks to consider before diving in are:

Regulatory Risks. Many invest in IBIO due to its activity in the development of COVID-19 vaccines and therapeutics. However, the company will have to appease regulatory agencies. If its data isn’t strong enough to do so, it won’t ever be able to sell these products.

Clinical Risks. There are clinical risks surrounding the company’s own assets, and the assets under development at ATB Therapeutics. Should IBIO’s own vaccine and therapeutic assets fail in the clinic, the reason for significant declines is obvious. However, if ATB Therapeutics’ trials don’t go well, they won’t have a need to look to IBIO for further manufacturing of its protein. Moreover, the trial won’t get as much wide-spread awareness, resulting in a lesser branding opportunity as a manufacturer of complex proteins.

Capitalization Risks. As you can see from today’s news, publicly traded companies often raise capital through the sale of common stock, leading to declines in the value of the stock, as is the case with IBIO today. However, this isn’t the first time the company has tapped the market for funding, and probably won’t be the last. Keep an eye out for financial struggles that may lead to further capital raises and dilution.

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Final Thoughts

IBIO stock is indeed a risky play, but in the stock market, risks can come with significant rewards. While there are questions about the company’s viability as a COVID-19 play, it’s important to remember that it isn’t a one-trick pony. 

Ultimately, there’s quite a bit of value in the company’s FastFarming Facility, and should things go well there, and with the trial at ATB Therapeutics, the company could become a cornerstone in the manufacturing of these life-changing therapeutic components. All in all, that makes IBIO stock a potentially significant long-run play.

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